2
e-Business Models
Objectives
• To understand the different business models
implemented on the Internet.
• To explore the transition from brick-and-mortar
businesses to e-businesses.
• To understand the many options available to
entrepreneurs online.
• To review both B2C and B2B e-business models.
The Road to the City of Emeralds is paved with yellow brick.
Lyman Frank Baum
Ye shall no more give the people straw to make brick.
The Old Testament
I can’t work without a model.
Vincent Van Gogh
The propensity to truck, barter and exchange one thing for
another … is common to all men, and to be found in no other
race of animals.
Adam Smith
Method goes far to prevent trouble in business.
William Penn
To business that we love we rise betime,
And go to’t with delight.
William Shakespeare
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Chapter 2
Outline
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
Introduction
Storefront Model
2.2.1
Shopping-Cart Technology
2.2.2
Online Shopping Malls
Auction Model
Portal Model
Dynamic-Pricing Models
2.5.1
Name-Your-Price Model
2.5.2
Comparison-Pricing Model
2.5.3
Demand-Sensitive Pricing Model
2.5.4
Bartering Model
2.5.5
Rebates
2.5.6
Offering Free Products and Services
B2B E-Commerce and EDI
Click-and-Mortar Businesses
Internet and World Wide Web Resources
Summary • Terminology • Self-Review Exercises • Answers to Self-Review Exercises • Exercises •
Works Cited • Recommended Reading
2.1 Introduction
There are many benefits of bringing a business to the Internet. An e-business can offer personalization, high-quality customer service and improved supply-chain management—the
strategic management of distribution channels and the processes that support them. In this
chapter, we explore the different types of businesses operating on the Internet, as well as
the technologies needed to build and run an e-commerce Web site.
Amazon.com, eBay™, Yahoo! and other e-commerce sites have helped to define
industry categories and business models on the Web. Entrepreneurs starting e-businesses
and people interested in e-commerce should be aware of the many e-business models. In
this chapter, we review the storefront model, the auction model, dynamic-pricing models,
the portal model and other Web-business models. Businesses operating within a particular
model can leverage their technologies to differentiate themselves from the competition.
2.2 Storefront Model
The move toward e-commerce presents many benefits, as well as a number of new considerations. The storefront model is what many people think of when they hear the word "ebusiness." The storefront model combines transaction processing, security, online payment
and information storage to enable merchants to sell their products online. This model is a
basic form of e-commerce in which the buyer and the seller interact directly.
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e-Fact 2.1
Shopping online is an increasingly popular activity. At the close of 1999, nearly 55 million
2.1
people (60 percent of Internet users) were shopping online.1
To conduct storefront e-commerce, merchants need to organize online catalogs of
products, take orders through their Web sites, accept payments securely, send merchandise
to customers and manage customer data (such as customer profiles). They must also market
their sites to potential customers—a topic further explored in Chapter 8, Internet Marketing.
Although the term "e-commerce" is fairly new, large corporations have been conducting e-commerce for decades, by networking their systems with those of business partners and clients. For example, the banking industry uses Electronic Funds Transfer (EFT)
to transfer money between accounts. (This system will be discussed in greater detail in
Chapter 4, Online Monetary Transactions.) Many companies also use a standard communications protocol called Electronic Data Interchange (EDI), in which business forms, such
as purchase orders and invoices, are standardized, so that companies can share information
with customers, vendors and business partners electronically. EDI is discussed in detail in
Section 2.6, B2B E-Commerce and EDI.
Until recently, e-commerce was feasible only for large companies. However, the
Internet and the World Wide Web make it possible for small businesses to use EDI as well.
E-commerce also allows companies to conduct business 24-by-7—all day, everyday—on a
worldwide basis.
Some of the most successful e-businesses use the storefront model. Many of the
leading storefront model companies are B2C (business-to-consumer) companies. For
example, More.com is a health and beauty e-commerce site that uses an electronic shopping cart to allow customers to shop, buy and arrange shipment. Its products include skincare products, eye-care products, pharmaceuticals and many other health and wellness
products.
Moviefone.com uses the Internet to improve its offline customer service. Through
its Web site, customers have access to movie tickets, reviews, movie clips and trailers.
Moviefone uses shopping-cart technology to offer its tickets, an advanced database system
to store customer and inventory data and a strong supporting infrastructure to make its
Internet operations possible.
2.2.1 Shopping-Cart Technology
One of the most commonly used e-commerce enablers is the shopping cart. This order-processing technology allows customers to accumulate items they wish to buy as they continue to
shop. Supporting the shopping cart is a product catalog, which is hosted on the merchant server
in the form of a database. The merchant server is the data storage and management system employed by the merchant. It is often a system of computers that conduct all of the functions necessary for running a Web site. A database is a part of the merchant server designed to store and
report on large amounts of information. For example, a database for an online clothing retailer
would typically include such product specifications as item description, size, availability, shipping information, stock level and on-order information. Databases also store customer information such as names, addresses, credit-card data and past purchases. The Amazon.com
feature explains the these technologies and their implementation.
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Amazon.com and the Storefront Model
Perhaps the most widely recognized example of an e-business that uses shopping-cart
technology is Amazon.com.2, 3 Founded in 1994, the company has rapidly grown to
become one of the world's largest online retailers. Amazon.com offers millions of
products to more than 17 million customers in 160 countries. Amazon.com also offers
online auctions.
In its first few years, Amazon.com served as a mail-order book retailer. Its line
product line has since expanded to include music, videos, DVDs, electronic cards, consumer electronics, hardware, tools, beauty items and toys. Amazon.com’s catalog is
constantly growing and the site allows you to navigate among millions of products.
Amazon.com uses a database on the server-side (the merchant’s computer systems) that allows customers on the client-side (the customer’s computer, handheld
device, etc.) to search for products in a variety of ways. This system is an example of
a client/server application. The Amazon.com database consists of product specifications, availability, shipping information, stock levels, on-order information and other
data. Book titles, authors, prices, sales histories, publishers, reviews and in-depth
descriptions are also stored in the database. This extensive database makes it possible
for Amazon.com to cross-reference products. For example, a novel may be listed
under various categories, including fiction, best-sellers and recommended titles.
Amazon.com personalizes its site to service returning customers; a database
keeps a record of all previous transactions, including items purchased, shipping and
credit-card information. Upon returning to the site, customers are greeted by name and
presented with lists of recommended titles, based on the customers’ previous purchases. Amazon.com searches the customer database for patterns and trends among
its clientele. By monitoring such customer data, the company provides personalized
service that would otherwise need to be handled by sales representatives. Amazon’s
computer system drives sales of additional items without human interaction.
Buying a product at Amazon.com is simple. You begin at the Amazon.com
home page and decide on the type of product you would like to purchase. For example,
if you are looking for our book e-Business & e-Commerce How to Program, you can
find the book by using the Search Box in the top-left corner of the home page. Select
Books in the Search Box, then type the title of the book into the window. You will
then be taken directly to the product page for the book. To purchase the item, select
Add to Shopping Cart, on the top-right corner of the page. The shopping-cart technology processes the information and displays a list of the products you have placed in
the shopping cart. You then have the option to change the quantity of each item, remove
an item from the shopping cart, check out or continue shopping.
When you are ready to place your order, you proceed to checkout. As a first-time
visitor, you will be prompted to fill out a personal-identification form with information
including your name, billing address, shipping address, shipping preference and creditcard information. You will also be asked to enter a password that you will use to access
your account data for all future transactions. Once you confirm your information, you
can place your order.
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Amazon.com and the Storefront Model (Cont.)
Customers returning to Amazon.com can use its 1-ClickSM system, which allows
the customer to reuse previously entered payment and shipping information to place an
order with just one click of the mouse. It is an example of how an intelligently designed
database application can make online business transactions faster and easier.
When you have finished placing your order, Amazon.com sends a confirmation
to you by e-mail. It sends a second e-mail when the order is shipped. A database monitors the status of all shipments. You can track the status of your purchase until it leaves
the Amazon.com shipping center by selecting the Your Account link at the bottom
of the page and entering your password. This will bring you to an Account Maintenance page. You can cancel your order at any time before the product is shipped,
which usually occurs within 24 to 48 hours of purchase. Amazon.com has regional
warehouses from which it ships a majority of packages overnight without having to use
express delivery services.4
Amazon.com operates on secure servers that protect your personal information.
If you feel uncomfortable using your credit card on the Web, you can initiate your order
through Amazon’s Web site using the last five digits of your credit card and later complete your order by calling Amazon’s Customer Service Department to provide the
remaining numbers. We discuss Web security in Chapter 7, Internet Security.
For more examples of e-businesses that use shopping-cart technology, visit
www.etoys.com, www.eddiebauer.com® and www.cdnow.com. In Chapter 3,
Building an e-Business, we discuss the important methods and techniques for building an
e-business.
While shopping-cart technology offers consumers the convenience of quick and easy
transactions, it creates problems regarding consumer privacy and online security. These
issues are discussed at length in Chapter 7, Internet Security and Chapter 11, Legal and Ethical Issues; Internet Taxation.
2.2.2 Online Shopping Malls
Online shopping malls present consumers with a wide selection of products and services.
They offer more convenience than does searching and shopping at independent online
storefronts, for a number reasons. For example, consumers can find products from a wide
variety of vendors, and rather than making several separate purchases, they can use the
mall’s shopping-cart technology to purchase items from many stores in a single transaction.
Often, these online shopping-mall sites act as shopping portals, directing traffic to the leading shopping retailers for a specific product.
An example of a leading online mall is Mall.com, which features many of the same
vendors you will find in your local brick-and-mortar mall—offline retailers such as JCrew,
The Gap (www.gap.com), The Sports Authority and the Sharper Image.
Shopnow.com® and www.DealShop.com are other online malls.
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2.3 Auction Model
The Web offers many kinds of auction sites in addition to sites that search other auction
sites to pinpoint the lowest prices on an available item. Usually, auction sites act as forums
through which Internet users can assume the role of either seller or bidder. As a seller, you
are able to post an item you wish to sell, the minimum price you require to sell your item
and a deadline to close the auction. Some sites allow you to add features such as a photograph or a description of the item’s condition. As a bidder, you may search the site for the
availability of the item you are seeking, view the current bidding activity and place a bid—
usually in designated increments. Some sites allow you to submit a maximum bidding
price, and an automated system will continue bidding for you. Auction technology is explained in depth in the eBay feature.
e-Fact 2.2
Forrester Research has revealed that an estimated $3.8 billion will have been spent on online
person-to-person auctions in the year 2000 alone. This number is dwarfed by the $52 billion
2.2
that is projected to be spent on business-to-business auctions in 2002.5
The reverse-auction model allows the buyer to set a price that sellers compete to
match, or even beat. One example of a reverse-auction site is Liquidprice.com, which
processes your auction bid within two days. A faster option is available when the buyer sets
a reserve price. A reserve price is the lowest price that the seller will accept. Sellers can set
the reserve price higher than the minimum bid. If no bid meets the reserve price, the auction
is unsuccessful. If a seller sets a reserve price at Liquidprice.com, the seller will
receive a series of bids within six hours of the initial posting. However, in this faster option,
if a successful bid is made, the buyer and seller must commit.
Although auction sites usually require a commission on sales, these sites are only a
forum for online buying and selling. After an auction has been completed, both the seller
and the bidder are notified, and the method of payment and the delivery is then worked out
between the two parties. Most auction sites do not involve themselves in payment or
delivery, but they might do so if delivery and payment services could be used to generate
revenue and profit.
eBayTM and the Online Auction Model
Online auctions have become an enormously successful method of e-commerce. The
leading company in this business is eBay (Fig. 2.1).6 eBay is one of the most profitable
e-businesses. The successful online auction house has its roots in a 50-year-old novelty
item—Pez® candy dispensers. Pam Omidyar, an avid collector of Pez® dispensers,
came up with the idea of trading them over the Internet. When she expressed this idea
to her boyfriend, Pierre Omidyar (now her husband), he was instantly struck with the
soon-to-be-famous e-business auction concept. In 1995, the Omidyars created a company called AuctionWeb. The company was renamed eBay and has since become the
premier online auction house, with as many as 4 million unique auctions in progress
and 450,000 new items added each day.7
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eBayTM and the Online Auction Model (Cont.)
Fig. 2.1
eBay home page. (These materials have been reproduced by
Prentice Hall with the permission of eBay, Inc. COPYRIGHT © EBAY,
INC. ALL RIGHTS RESERVED.)
On eBay, people can buy and sell just about anything. The company collects a submission fee, plus a percentage of the sale amount. The submission fee is based on the
amount of exposure you want your item to receive, with a higher fee required if you
would like to be among the “featured auctions” in your specific product category, and
an even higher fee if you want your item to be listed on the eBay home page under Featured Items. Listings are shown on the home page periodically. Another attentionattracting option is to publish the product listing in a boldface font (for an additional
charge).
eBay uses a database to manage the millions of auctions it offers. This database
evolves dynamically as sellers and buyers enter personal identification and product
information. The seller entering a product to be auctioned, provides a description of the
product, keywords, an initial price, a closing date for the auction and personal information. This data is used to produce the product profile seen by potential buyers (Fig. 2.2).
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eBayTM and the Online Auction Model (Cont.)
Fig. 2.2
Placing a bid on eBay. (These materials have been reproduced by
Prentice Hall with the permission of eBay, Inc. COPYRIGHT © EBAY,
INC. ALL RIGHTS RESERVED.)
The auction process begins when the seller posts a description of the item for sale
and fills in the appropriate registration information. The seller must specify a minimum
opening bid. If potential buyers feel this price is too high, the item may not receive any
bids. In many cases, a reserve price is also set. Sellers might set the opening bid lower
than the reserve price to generate bidding activity.
If a successful bid is made, the seller and the buyer negotiate the shipping details,
warranty and other particulars. eBay serves as a liaison between the parties; it is the
interface through which sellers and buyers can conduct business. eBay does not maintain a costly physical inventory or deal with shipping, handling or other services that
businesses such as Amazon and other retailers must provide.
eBay has spawned a number of businesses that use the site as their means of selling
products. These businesses depend on eBay to remain up and running. Because downtime can be costly to an online business, companies like eBay make investments in
high-availability computing and continuous-availability computing.
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eBayTM and the Online Auction Model (Cont.)
High-availability computing attempts to minimize downtime; continuous-availability computing attempts to eliminate it completely. One key to such technologies is
fault-tolerant systems that use redundancy. Every crucial piece of hardware—processors, disks and communications channels—has one or more levels of backup, so that,
in a failure, the system shifts from a failed component to a backup component. This
procedure enables the system to keep running while the failed component is fixed or
replaced. The same is true of data: Because companies cannot afford to lose their business data, the data are also maintained redundantly. Tandem (www.tandem.com)
and Stratus (www.stratus.com) build continuous-availability and high-availability
computing systems.
The impact of eBay on e-business has been profound. Its founders took a limitedaccess offline business model and, by using the Internet, were able to bring it to the
desktops of consumers worldwide. This business model consistently generates a profit
on the Web. Business Week states, “The bidding and close interaction between buyers
and sellers promotes a sense of community—a near addiction that keeps them coming
back.” 8 By implementing traditional marketing strategies and keeping the process
simple, eBay has offered a successful alternative to storefront-style e-commerce.
There are several other online auction sites, including Yahoo! Auctions (auctions.yahoo.com), Amazon Auctions (www.amazon.com), FairMarket, Inc.
(www.fairmarket.com) and Sotheby’s (www.sothebys.com). If you prefer to
see an auction as it happens, visit the demo at www.ibidlive.com.
Auctions are also being employed by business-to-business (B2B) Web sites. In these
auctions, the buyers and the sellers are companies. Companies use online auctions to sell
excess inventory and gain access to new, price-sensitive customers. Three examples of B2B
auction sites are DoveBid, Inc. (www.dovebid.com), WorldCall Exchange
(www.worldcallexchange.com) and U-Bid-It.com.
2.4 Portal Model
Portal sites give visitors the chance to find almost everything they are looking for in one
place. They often offer news, sports and weather information, as well as the ability to search
the Web. When most people hear the word "portal," they think of search engines. Search
engines are horizontal portals, or portals that aggregate information on a broad range of
topics. Other portals are more specific, offering a great deal of information pertaining to a
single area of interest; these portals are called vertical portals.
Online shopping is a popular addition to the major portals. Sites such as
Hotbot.com, About.com®, altavista.com and Yahoo.com® provide users with
a shopping page that links them to thousands of sites carrying a variety of products.
Portals linking consumers to online merchants, online shopping malls and auction sites
provide several advantages. These portals help users collect information on an item for
which they are looking and allow users to browse independently owned storefronts, unlike
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some online shopping malls. (See the feature on Yahoo! for an example of a shopping
portal.) Yahoo! permits users to browse a variety of sites while maintaining the convenience of paying through their Yahoo! account.
About.com offers its users an individualized experience through GuideSite, a service
that acts as a personal shopper for the user. About.com’s “guides,” each specializing in
a particular product type, are continually updated and are accessible via e-mail for consumer comments and questions.9
Consumers must be savvy when using portals to do their online shopping. Each portal
structures its online shopping experience a little differently. Some portals charge merchants
for a link; others do not. For example, GoTo.com bills merchants per consumer clickthrough. The more a business is willing to pay for each consumer click, the higher that business will appear in GoTo.com’s ranks. Portals that charge a listing fee limit the number of
merchants accessible to customers.10 Other sites—About.com and altavista.com,
for example—do not charge merchants to appear in some locations on their sites
(About.com’s GuideSite and Altavista.com’s Shopping and Services Categories),
but reserve the top of the page and other prime site locations for paying customers.
Yahoo! and the Web Portal Model
Yahoo! is a horizontal portal with an enormous number of site links and subject categories (Fig. 2.3). It also provides consumers with shopping-cart capabilities. Through
Yahoo!, consumers can link to a variety of online stores, adding items to their Yahoo!
shopping cart as they shop. Once users are registered with Yahoo!, they may begin
searching for products. After selecting a product and a merchant, users have the option
of adding the item to their shopping cart or putting it on their wish list. The wish list is
a personalized Web page that aggregates and stores all items you wish to purchase at a
later date. It can also be used to build a Christmas list or a wedding registry.
To participate in Yahoo!’s shopping offering, a consumer clicks on the Shopping
link at the top of Yahoo!’s home page. From there, a consumer can search for a product
by selecting a category, conducting a keyword search or visiting one of the Featured
Stores. Other features included on this page are gift registration, Hot Products,
What’s Selling Now and the Yahoo! Points reward system. Signing up for gift registration or the reward system is a simple process, completed by clicking on the SignIn link and creating a username and password.
When consumers are ready to check out, they can purchase all their items through
Yahoo!, rather than purchasing at each store. This simplifies the purchasing process by
limiting the number of registration and billing forms the customer must complete.
Yahoo! Shopping is just one of the many sections within Yahoo! A visitor to the
site can search the Web for any product. To improve the quality of its Web-searching
capabilities, Yahoo! has partnered with the search engine Google.com. When Web
surfers enter a keyword using Google search technology, they receive a list of links
based on the popularity of each site; the Web links are returned in descending order
based on the number of people who link to each site.11
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Yahoo! and the Web Portal Model (Cont.)
Fig. 2.3
Customers have the benefit of comparison shopping at Yahoo!
Shopping. (Reproduced with Permission of Yahoo!© by Yahoo! Inc.
YAHOO! and the YAHOO! logo are trademarks of Yahoo! Inc.)
Other leading horizontal portals include Ask Jeeves! (www.ask.com) and
AltaVista (www.av.com). Ask Jeeves! uses natural-language processing technology to
understand a customer’s question and generate an answer. Natural-language processing
is discussed in detail in Chapter 10, e-Customer Relationship Management. This enables
search engine users to enter their queries as simple english sentences—other search
engines base their searches on keywords entered ny the user. Ask Jeeves! queries all of
the major search engines to provide customers with links to sites relating to their question.
AltaVista links to all areas of the Web and offers free Internet access, shopping, affiliate
opportunities and breaking news. Other search engines include www.google.com,
www.metacrawler.com, www.dogpile.com and www.gomez.com.
2.5 Dynamic-Pricing Models
In the past, bargain hunters had to search for deals by visiting numerous local retailers and
wholesalers. In this section, we describe in depth the many ways in which creative pricing
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is being used to generate business. Many of these methods would not be possible without
the Internet. Some companies enable customers to name the prices they are willing to pay
for travel, homes, automobiles and consumer goods.
Buying in bulk has always driven prices down, and there are now Web sites that allow
you to find lower prices by joining with other buyers to purchase products in large quantities. Another pricing strategy used by many e-businesses is to offer products and services
for free. By forming strategic partnerships and selling advertising (see Chapter 9, Affiliate
Programs) many companies are able to offer their products at a greatly reduced rate, and
often for free. Bartering and offering rebates are other ways in which companies are
keeping prices down on the Internet (see Chapter 8, Internet Marketing).
The Web has also improved the customer’s ability to compare pricing among many
vendors. Sites like Deja.com and bottomdollar.com aggregate pricing information
on a wide variety of products sold across the Web.
2.5.1 Name-Your-Price Model
The name-your-price business model empowers customers by allowing them to state the
price they are willing to pay for products and services (see the Priceline.com feature).
Many of the businesses that offer this service have formed partnerships with leaders of various industries, such as travel, lending, retail, etc. These industry leaders receive the customer’s desired price from the business, which acts as an intermediary, and decide whether
or not to sell the product or service the customer wants. If the customer’s price is not accepted, the customer may offer another price. If it is accepted, the customer is obligated to
make the purchase.
Priceline.com and the Comparison-Pricing Model
Employing the name-your-price business model has catapulted Priceline.com
into the spotlight. Through its system, you can name your price for airline tickets, hotel
rooms, rental cars and mortgages. Its patented business mechanism, called the demandcollection system, is a shopping bot that takes customers’ bids to the Priceline partners
to see whether they will accept the prices for the requested products and services. Many
e-businesses are using intelligent agents (such as shopping bots) to enhance their Web
sites. Intelligent agents are programs that search and arrange large amounts of data and
report answers based on that data. Shopping bots are often used to scour data contained
within a single database or across the Web to find answers to specific questions. (Intelligent-agent and shopping-bot technology are discussed in Chapter 10, e-Customer Relationship Management.)
The buying process is easy at Priceline.com. For example, when looking for
a domestic flight, you first enter your departure location, destination, bid price and the
number of tickets you would like to purchase. You then select the travel dates and airports in or near the departure or arrival cities. The more flexible you are with your travel
arrangements, the greater your chance of getting the air ticket at your stated price.
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Priceline.com and the Comparison-Pricing Model (Cont.)
The Priceline.com bot presents your bid to the airlines and attempts to negotiate a fare below the customer’s bid price. If the bid is accepted, Priceline.com
retains the difference between the customer’s bid and the actual fare. The markup percentage varies with the price that is accepted by the airline. For domestic flights, the
whole process takes about an hour.
Priceline.com is another example of how the Internet and Web are profoundly
changing the way business is conducted. In the case of airlines, hundreds of thousands of
airline seats go empty each day. Priceline.com helps airlines sell those seats. By
facilitating the sale of excess inventory at a discount, Priceline.com allows airlines
to realize increased revenue and helps passengers save money.
Last-minute travel is expensive. Airlines and accommodations are often priced at
a premium. With Priceline.com and similar services, you can often travel at
reduced rates far below the retail price. However, waiting until the last minute is also
risky, as there is no guarantee that seating will be available.
2.5.2 Comparison-Pricing Model
The comparison-pricing model allows customers to poll a variety of merchants and find a
desired product or service at the lowest price (see the BottomDollar.com feature).
These sites often generate revenue from partnerships with particular merchants. You need
to be careful when using these services, though, because you may not necessarily be getting
the best price available on the entire Web.
BottomDollar.com Will Help You Find the Lowest Price13
BottomDollar.com uses intelligent-agent technology to search the Web and find
the products you want at the best available prices. A customer can use BottomDollar.com to search for a product or to browse the various categories on the site. The
service searches the catalogs of over 1,000 online retailers to find the products you
want. The search usually takes less than a minute. Imagine trying to call or visit 1,000
different stores one by one.
Shopping bots and intelligent agents are changing the ways in which people shop.
Rather than going directly to the stores with established brand names, customers are
using services like BottomDollar.com to get the best available prices. This situation pressures online retailers to keep their prices competitive.
Similar comparison pricing sites include Dealtime.com, Deja.com and
MySimon.com. DealTime (www.dealtime.com) selects merchants based on customer popularity, reliability and reviews. Deja.com is a multifaceted Web site
offering shopping, discussion groups, customer ratings and comparison shopping.
Users of the service can write their own opinions in the sections for discussions and
reviews. MySimon (www.mysimon.com) offers a comparison-pricing search from a
small number of better known retailers.
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2.5.3 Demand-Sensitive Pricing Model
The Web has enabled customers to demand better, faster service at cheaper prices. It also
empowers buyers to shop in large groups to obtain group discounts. The concept behind the
demand-sensitive-pricing business model is that the more people who buy a product in a
single purchase, the lower the cost per person becomes. Selling products individually can
be expensive because the vendor must price a product so that it covers selling and overhead
costs while still generating a profit. When customers buy in bulk, these costs are shared
among products, and the profit margin is increased. Mercata™ (www.mercata.com)
sells products for the home, electronics, computers and peripherals using the demand-sensitive pricing model. MobShopSM (www.mobshop.com) offers comparable services. Because pricing and products vary between these and other, similar sites, customers should
visit several such sites before making a purchase.
2.5.4 Bartering Model
Another popular method of conducting e-business is bartering, or offering one item in exchange for another. Ubarter.com™ is a site that allows individuals and companies wishing to sell a product to post their listings. The seller makes an initial offer with the intention
of bartering to reach a final agreement with the buyer. A broad range of products and services is available for barter.
If a business is looking to get rid of an overstocked product, iSolveSM
(www.isolve.com) can help sell it. Products can be sold directly or on a barter basis.
Potential customers send their pricing preferences to the merchant, who evaluates the offer.
Deals are often part barter and part cash. Examples of items typically bartered are overstocked inventory items, factory surplus and unneeded assets.
2.5.5 Rebates
Rebates can help attract customers to your site. Many companies offer “everyday low prices” and specials to keep customers coming back. eBates.com is a shopping site where
customers receive a rebate on every purchase. eBates.com has formed partnerships with
wholesalers and retailers who offer discounts; the company passes these discounts to customers in the form of rebates. By adding value to a customer’s visit, eBates builds customer
satisfaction and loyalty. eBates retains a portion of the savings.
eCentives.com offers a similar service. During the eCentives registration process,
customers are asked to describe their interests, needs, hobbies, etc. This information allows
eCentives.com to tailor rebates and product promotions directly to the customer. The site
forms partnerships with vendors, who, in turn, offer their rebates and promotions on the site.
2.5.6 Offering Free Products and Services
Many entrepreneurs are forming their business models around advertising-driven revenue
streams. Television networks, radio stations, magazines and print media use advertising to
fund their operations and make a profit. The sites discussed in this section offer their products for free on the Web. Many of the sites also form partnerships with companies to exchange products and services for advertising space and vice versa.
The Hollywood Stock Exchange (www.hsx.com) is a free gaming site where visitors
become traders of entertainment stocks and Hollywood star bonds. Traders are able to track
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the value of their movie and music stocks and bonds as they fluctuate. The strongest portfolios
are rewarded with prizes. Although no actual money is traded, real prizes are awarded. The
company is able to offer its services for free by selling advertising to sponsors.
iWon.com™ is a portal site that rewards users with raffle points as they browse the
site’s content. iWon.com has the appearance of a traditional search engine, offering links
to news, sports, weather, and other topics. However, users registering and surfing the site
become eligible for daily, weekly, monthly and annual prizes. Every advertisement and link
has a point value, and as points accrue, so does a customer’s chances of winning.
iWon.com supports its free contests through advertising revenue and partnerships.
Freelotto.com also offers free contests supported by advertising revenue. After
registering with Freelotto.com, you can enter a free lottery. FreeLotto awards tens of
millions of dollars in cash and prizes through its online lottery system. However, you must
visit sponsoring Web sites in exchange for an entry into the daily Freelotto.com contest. Freelotto.com generates its income from these sponsors.
Freemerchant.com offers free hosting, a free store builder, a free shopping cart,
free traffic logs, free auction tools and all of the necessary elements for running an e-commerce storefront or auction site. Freemerchant.com makes money from its strategic
partnerships and referrals. Freemerchant.com partners are companies that can help
small businesses establish a presence on the Web. These partners offer their services free
of charge in exchange for advertising.
At Startsampling.com, you can earn prizes for trying and reviewing products.
The site allows you to request free samples from companies across the country. Web sites
offering similar services include free-programs.com, freestuffcenter.com
and emazing.com.
2.6 B2B E-Commerce and EDI
B2B, the acronym for "business-to-business," refers to the relationship between two or
more companies. Online or offline, the term "B2B" can be applied to simple relationships
between a single buyer and a single seller, as well as to complex distribution and fulfillment
systems that link hundreds of suppliers and manufacturers. Electronic Data Interchange
(EDI) systems help businesses manage their supply chains. A company’s supply chain refers to the relationship between original equipment manufacturers (OEMs), secondary
manufacturers, distributors, shipping companies, retailers and consumers.
Traditional EDI systems are made up of a combination of computers and communications equipment that give businesses the ability to conduct secure, reliable transactions
electronically. Traditional EDI, as opposed to Internet-based EDI, uses a value-added network, or VAN. The VAN is a closed network that includes all members of a production process. Every supplier, manufacturer and distributor is linked to the EDI system through the
VAN. EDI systems track and document the daily accounting and inventory data for a business. For example, an airplane manufacturer may have an EDI system in place to manage
its supply and distribution relationships. In a given day, the airline manufacturer might
receive thousands of yards of sheet metal, countless shipments of electronics equipment
and dozens of engines from various suppliers worldwide. Each of these shipments must
pass through complex distribution channels. Since the shipments are essential to the timely
completion of an airplane, the manufacturer must make every effort to ensure that the products will be delivered on time. Operations personnel at the manufacturing plant use the EDI
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system to buy supplies, track shipments and keep an accurate inventory count. This process
is done through a standardized transfer of electronic documentation that verifies each party
in a transaction, records the terms and conditions of the transaction and processes the order.
Purchase orders and invoices are commonly processed through EDI systems.14
Although EDI systems improve efficiency and promote better accounting practices,
they can be costly to operate. Many suppliers and distributors are small machine shops and
shipping companies, which do not have the technology to link themselves into a traditional
EDI system. Suppliers and distributors also have to consider their other customers. If a supplier standardizes its information systems with a single manufacturer, it may become more
difficult to do business with other, "incompatible" manufacturers. In this instance, the manufacturer can either incur the cost of integrating the supplier into the system or exclude the
supplier from the EDI system and manage the relationship manually. Either way, the benefits of the EDI system are compromised, and expenses increase. The Internet is improving
EDI standards by making it more accessible to a broader group of manufacturers, distributors and retailers.
Since the transfer of data is conducted through a common system (the Web), compatibility is less of an issue. In the past, companies with incompatible information management systems might have had difficulty conducting transactions. XML (eXtensible Markup
Language) can now be used to improve compatibility between disparate systems, creating
new market opportunities. XML is a development technology similar to HTML (Hypertext
Markup Language). HTML is a language used to format the content and appearance of Web
sites. It has been a de facto Web development standard since its creation. XML takes the
language one step further and defines the meaning of data.15 For example, an XML developer can code the data in a product catalog with XML. Each product in the catalog is
assigned tags describing its size, color, price, supplier, estimated lead time and discounting
policy. Since XML can be used with a wide range of systems and platforms, the company
could then offer its catalog data on multiple B2B exchange sites. The product name, price
and other descriptive data are formatted automatically to fit the look and feel of each site.16
ebXML.com is the Web presence of the United Nations body for the Facilitation of
Electronic Commerce (UN/CEFACT) and the OASIS, a nonprofit organization dedicated to
the standardization of electronic business. The goal of the group is to create and support an
XML-based standard, ebXML, for business communication and operations on the Web.
The site is a source of documentation for the ebXML standard and the latest news and
updates on the progress of the standard.17
B2B exchange sites offer this new form of EDI. These exchange sites have been established in almost every major industry and provide a method of buying, selling, bartering
and partnering in a standardized environment. Some of the most successful automobile,
energy, health care and construction organizations use B2B exchanges to conduct business
with their suppliers and customers.The typical B2B exchange site allows manufacturers,
wholesalers, retailers and end consumers to buy, sell and barter over the Web (Fig 2.4). By
aggregating these relationships into a single marketplace, B2B exchange sites can provide
secure, reliable and more accessible forms of EDI.
Many B2B exchanges and Internet-based EDI systems enable businesses to link their
current information systems with those of other businesses. For instance, an automobile
exchange can give an automobile manufacturer access to hundreds of suppliers, each competing for its business. This competitive environment leads to lower prices for the automo-
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bile manufacturer. Once a purchase has been made, the manufacturer pays for the product
and arranges shipment through the site. Once the cars are assembled, the manufacturer can
use the exchange to form relationships with various dealerships and auctions.
B2B e-commerce and the use of exchange sites allow businesses to reach their markets
faster and more efficiently. By shortening lead time, or the time it takes to receive a product
from a supplier after an order has been placed, businesses can lower their inventory costs
and gain competitive advantage. Long lead times increase inventory costs, increase worker
stress levels and strain relationships between the manufacturer and the supplier.18
Companies can arrange shipment of supplies at the exact time they are needed, thereby
limiting any unnecessary inventory expense. In many cases, a company’s inventory management system will place a supply order automatically when inventory levels drop below
critical levels. This eliminates the need for a stockroom, as parts are delivered from the
truck directly to the production floor. This system is often referred to as JIT (just-in-time)
inventory management. JIT inventory management has been practiced for decades, but a
fully integrated e-commerce infrastructure can improve a company’s ability to operate
under such protocols. The Web can help reduce supplier delays, which traditionally are a
major risk for manufacturers.19
e-Fact 2.3
Goldman Sachs has estimated that B2B e-commerce will generate as much as $1.5 trillion in
2.3
revenues by 2004, with some estimates running even higher.20
The process of integrating traditional EDI systems with the Web is often referred to as
Enterprise Application Integration (EAI).21 There are a number of companies that use
XML and similar technologies to help other companies integrate their current systems with
the Web. These companies, called business-to-business integrators (B2Bi), include Excara
(www.excara.com), Webmethods.com®, Commerce One® (www.commerceone.com), Tibco Software, Inc. (www.tibco.com), Freemarkets.com® and
Mercator®, (www.mercator.com). They help a brick-and-mortar business develop an
online presence with e-commerce capabilities, enabling the business’ products to be distributed through its site, B2B exchanges and corporate intranets. They will help convert a
company’s paper or CD-ROM-based catalog into a dynamically enhanced digital catalog.
B2B integrators will also improve a company’s supply-chain management efforts by standardizing its electronic data interchange protocols and product-listing procedures. Many
integrators also help companies improve their marketing and promotional efforts.
The ItoI exchange site, located at www.itoi.com, is designed for inter-industry
trading and offers services in the chemical, retail, construction and energy industries. The
business provides a marketplace for raw materials, chemicals, equipment and services. Visitors have the option of buying through traditional methods, auctioning or conducting
exchanges—in an exchange, customers make requests, and merchants attempt to fill the
requests at the best available price.
BidGov.com is an exchange site for the U.S. government. This intra-government
exchange site fosters economic growth by generating new business for government agencies
and related groups. BidGov.com operates with a reverse auction model. An agency looking
to make a purchase must first submit a request for proposal (RFP)—a formal statement of
need that allows vendors to sell their products and services to the agency. Once this request
is made, the agency will post classified ads and receive bids from other individuals and agen-
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cies capable of fulfilling the request. Customers can also make purchases through a traditional
auction. Figure 2.4 gives examples of additional B2B exchanges, listed by industry.
2.7 Click-and-Mortar Businesses
In this section, we explore the advantages and the disadvantages of developing an online
presence, and the ways in which traditional businesses are implementing Internet strategies
to enhance their brick-and-mortar operations. We also consider the decision to create an Internet-only business.
Industry
Key Benefits
Automotive
• Combined supplier base.
• Connects automobile manufacturers, dealers
and consumers in a single marketplace.
Exchange Sites
Covisint.com
IStarXchange.com
Autovia.com
• Decreases lead time and production costs.
Electronics
• Provides access to thousands of components
from hundreds of electronics suppliers.
• Provides ability to search by part number,
product type or manufacturer.
FastParts.com
avnet.com
chipcenter.com
• Increases competitive pricing.
Energy
• Provides real-time pricing data on energy
commodities.
• Provides access to hundreds of energy commodities.
enrononline.com
altra.com
houstonstreet.com
• Allows regional energy providers to gain access to a worldwide market.
Food
• Reduced lead times preserve perishables.
• Provides access to real-time pricing data.
• Online auction technology allows for alternative pricing.
Chemical
• Access to millions of chemical products from
thousands of suppliers.
• Integrated supply chains promote faster, more
reliable transactions.
Construction
• Contracting and subcontracting are made simpler by online bidding.
• Construction companies can find raw materials from suppliers worldwide.
Fig. 2.4
gofish.com
globalfoods.com
foodtrader.com
chemdex.com
chemconnect.com
e-chemicals.com
Bidcom.com
buildscape.com
e-builder.com
A sampling of B2B exchange sites by industry. (Reprinted by Permission of
Forbes Magazine © 2000 Forbes 2000.)
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Internet-only establishments face several challenges, particularly those businesses
offering business-to-consumer services, such as e-retailers and online banking services.
One problem facing Internet-only businesses is customer relations. As we will see in
Chapter 16, Online Banking and Investing, Internet-only banks can struggle to build a customer base, because many consumers demand human-to-human communication when
managing their money. In Chapter 10, e-Customer Relationship Management, we explore
online methods of improving communication and customer service.
While Internet-only businesses offer the convenience of home shopping and often
reduce costs for the consumer, they also face the challenges of name recognition and customer satisfaction. Branding is discussed in Chapter 8, Internet Marketing. Internet shoppers must rely on a screen image of a product when they are making purchasing decisions.
Texture, true color and quality are often difficult to determine. Many click-and-mortar
businesses allow customers to purchase products online and pick them up at the brick-andmortar store. Many of these companies also allow online purchases to be returned at physical locations. This adds convenience for the customer, but adds a another level of
accounting complexity for the merchant. In the next chapter, we explore choosing a domain
name, as well as features that can be added to your site to address your customers’ concerns
about quality. Trust and confidence are two key issues that often impede an e-business in
its beginning stages.
There are many circumstances when it is more beneficial to operate as an Internet-only
business. For example, the overhead costs (or the costs of operation, including rents, utilities, storage and taxes) of Internet-only businesses are generally lower than those of traditional brick-and-mortar businesses. However, e-business owners must also be aware of the
costs of computer equipment and of managing a 24-by-7 business (i.e., a business that functions round the clock every day of the year).
Businesses must also consider the ability of their organizations to function online. Restaurants, for example, cannot exist solely on the Web, but they can offer a Web site for providing directions and making reservations. Menus, entertainment and special events can
also be posted on the site. The same might be true for many other businesses in service
industries. Auto and home repair, beauty and medical assistance are among the industries
that cannot provide their services online.
e-Fact 2.4
Click-and-mortar retailers accounted for 59 percent of online retail sales, compared with 41
percent for Internet-only retailers, in 1999.22
2.4
One of the most highly publicized transitions from brick-and-mortar operations to
click-and-mortar operations was that of Charles Schwab. Facing competition from
E*TRADE and other online stock-trading Web sites, Charles Schwab
(www.schwab.com) moved its brokerage services to the Web. The Internet has allowed
customers to trade at lower commission rates and has given them a chance to become more
informed investors. Schwab has found that its customers value the security and service they
receive from a traditional broker, but also enjoy the convenience of trading on the Web.23
Chapter 16, Online Banking and Investing, discusses these and related issues in detail.
Barnes & Noble (www.bn.com) has established itself as a leader in the booksellers’
market, both online and offline. Customers have access to the same inventory online as they
do in the actual stores. In the event that a customer is dissatisfied with a purchase made
online, the product can be returned to a local brick-and-mortar Barnes & Noble store.
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1-800-Flowers (www.1800flowers.com) offers its flower and gift delivery service both online and offline. The Web has given a major boost the gift and floral industry
by making it easier for customers to make purchases. One of the problems with offering an
order-by-phone service only is that the customer does not get to see the product before it is
sent. Other online flower dealers include Winston Flowers (www.winstonflowers.com), FTD.com and flowersdirect.com.
CircuitCity (www.circuitcity.com) specializes in consumer electronics, appliances, audio and video. It has effectively integrated its online and offline entities. CircuitCity has tied its offline stores to its online stores, allowing customers to order online
and pick up the products at their local stores, though shipping is still available.
In this chapter, we have examined the various business models used on the Internet. In
the next chapter, we discuss building e-businesses. We explore writing a business plan,
choosing a domain name, finding a Web-site host and Web-site design. We outline many
turnkey solutions available to entrepreneurs (several of which are free) and give future ebusiness owners a better understanding of the fundamental technologies needed to operate
a business online.
2.8 Internet and World Wide Web Resources
Storefront Model
barnesandnoble.com
One of the first brick-and-mortar companies to make a large-scale commitment to the Web, Barnes &
Noble sells books, e-books, CDs and software on their Web site using the shopping cart technology.
Moviefone.com
Moviefone enhances its offline efforts by allowing people to buy advance tickets to movies from its
Web site. Visitors can also view movie trailers, read cast interviews and get the latest movie reviews.
Half.com
This company sells new, used a refurbished its often at half the cost from its Web site. You can buy
products from the site or sell used items to Half.com.
Auction Model
eBay.com
This site is one of the most well known and successful sites on the Web. The site give average people
the chance to sell their items on the Internet.
auctiontalk.com
This site is an auction portal, providing links to other auctions and specific products being auctioned
at various sites online.
fsauctions.co.uk
Freeserve is one of the UK’s most popular Web sites. FSauctions is the freeserve auction site.
Portal Model
google.com
Google is an advanced search engine that rank search results based on the true popularity of the Web
site. The more people that follow a link to a particular site, the higher the site will appear in a search.
yahoo.com
Yahoo is a full scale portal allowing people to search the Web using a traditional search engine, by
browsing specific categories. Yahoo! also offers games, e-business solutions and free e-mail.
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altavista.com
AltaVista is one of the most widely visited sites on the Web. It is a full-scale search portal providing
targeted links and a search bar.
Name-Your-Price Model
priceline.com
The originator and patent holder of the name-your-price model, Priceline.com gives customers
the ability to name their price for travel arrangements and scores of other products and services.
ticketsnow.com
Finding low-priced tickets to concerts and theater is often difficult, this site gives people the ability to
bid for a lower price on their tickets.
allbooks4less.com
Textbooks can be expensive, this site allows people to name-their-price for text books.
Comparison-Pricing Model
www.deja.com
Deja.com uses the comparison pricing model to sell products through its Web site. The site also
hosts newsgroups on a broad range of topics.
www.pricewatch.com
People interested in building a computer or upgrading their current system will find the lowest prices
on computer equipment on this price comparison Web site.
www.bottomdollar.com
Bottomdollar.com was one of the first sites to offer comparison-pricing services. The site will
find lower prices on a broad range of retail products including consumer electronics, software, books,
camera equipment, toys and more.
Demand-Sensitive Pricing Model
www.mercata.com
One of the originators of the group-buying model on the Internet, this site will drop the price as the
number of its sold to the group increases.
www.mobshop.com
A competitor of Mercata, Mobshop also lowers prices as group buying increases.
www.shop2gether.com
This site gives visitors a chance to buy products at a lower price buy buying with a group.
Bartering Model
www.ubarter.com
This site facilitates B@B transactions by allowing members to trade assets through the ubarter.com Web site.
www.bigvine.com
This site allows business to sell virtually any product in return for Trade dollars. These Trade dollars
can be used to purchase other products on the Bigvine Web site.
www.bartertrust.com
Automotive parts and equipment, advertising, office supplies and retail products are among the products available to trade on this Web site.
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Rebates
www.ebates.com
This site provides electronic rebates on popular products available on its site.
www.ecentives.com
This site is a competitor to ebates and allows customers to get rebates and incentives on purchase
made through the eCentives Web site.
Free Products and Services
2000freebies.com
This search engine offers visitors links to thousands of free products and services on the Web.
www.killerfreebies.com
Killerfreebies offers links to free software, clothing, wedding supplies, server space and a large number of free products and services.
www.startsampling.com
Startsampling will send members free product samples in return for filling out short questionnaires.
People can also win free samples by participating in contests and quizzes.
Click-and-Mortar Businesses
www.compusa.com
Compusa combines its online and offline efforts to provide the best possible service to its customers.
A full product catalog is available from the Web site.
www.circuitcity.com
Circuit City allows customers to pick up products purchased online in its brick-and-mortar stores.
SUMMARY
• An e-business can offer personalized service, high-quality customer service and improved supplychain management.
• An e-business is defined as a company that has an online presence. Selling, trading, bartering and
engaging in transactions over the Web is referred to as e-commerce.
• The storefront model combines transaction processing, security and information storage, to allow
merchants to sell their products on the Web.
• The banking industry uses Electronic Funds Transfer (EFT) to transfer money between accounts.
• Many companies use Electronic Data Interchange (EDI), in which business forms, such as purchase orders and invoices, are standardized so that companies can share information with customers, vendors and business partners electronically.
• E-commerce enables companies to conduct business 24 hours a day, 7 days a week (24-by-7),
worldwide.
• B2C stands for "business to consumer."
• The merchant server is the data storage and management system employed by the merchant.
• A database is a part of the merchant server designed to store and report on large amounts of information. Databases also store customer information, such as names, addresses, credit-card data and
past purchases.
• Online shopping malls present consumers with a wide selection of products and services. Consumers
can search and shop for a variety of products; rather than making separate purchases, they can use
the mall’s shopping-cart technology to purchase items from many stores in a single transaction.
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• Forrester Research has revealed that an estimated $3.8 billion will have been spent on online person-to-person auctions in the year 2000 alone. This number is dwarfed by the $52 billion that is
projected to be spent on business-to-business auctions in 2002.
• Reverse auctions, or auctions that allow the buyer to set a price as sellers compete to match, or
even beat it, are becoming more popular.
• eBay uses a database to manage the millions of auctions that it offers. This database evolves dynamically as sellers and buyers enter personal identification and product information.
• High-availability computing attempts to minimize downtime; continuous-availability computing
attempts to eliminate it completely.
• Fault-tolerant systems use redundancy. Every crucial piece of hardware—processors, disks and
communications channels—has one or more levels of backup, so, in a failure, the system simply
shifts from a failed component to a backup component. The system keeps running while the failed
component is fixed or replaced.
• In the past, bargain hunters had to search out deals by visiting numerous local retailers and wholesalers. Today, a few mouse clicks are all you need to find the lowest price available.
• Buying in bulk has always driven prices down, and there are now sites on the Web that allow you
to lower the price of a product by waiting for others to purchase the product at the same time.
• A pricing strategy used by many e-businesses is to offer products and services for free.
• Bartering and offering rebates are ways in which companies are keeping prices down on the Internet.
• The name-your-price business model empowers customers by allowing them to choose their price
for products and services.
• Shopping bots are often used to scour data contained within a single database or across the Web
to find answers to specific questions.
• The comparison-pricing model allows customers to poll merchants and find a desired product or
service at the lowest price. These sites often take their revenue from partnerships with merchants.
• The Web has allowed customers to demand better, faster service at cheaper prices. It has also empowered buyers to shop in large groups to achieve a group rate on products.
• The concept behind the demand-sensitive pricing business model is that the more people who buy
a product in a single purchase, the lower the cost per person becomes.
• Another popular method of conducting e-business is bartering, or offering an item you do not want
or need in exchange for something for which you have a need.
• Rebates are a good way to attract customers to your site. Many companies offer everyday low prices and specials to keep customers coming back.
• B2B e-commerce is defined as buying, selling, partnering, bartering or trading, conducted between
two or more businesses. Goldman Sachs has estimated that B2B e-commerce will generate as
much as $1.5 trillion in revenues by 2004, with some estimates running even higher.
• The B2B marketplace is one of the fastest growing segments of e-commerce. Industry leaders have
begun using B2B marketplaces and exchanges to improve their business methods on the Web.
• Procurement, or acquiring goods or services, and effective supply-chain management can be difficult and costly aspects of running a business.
• B2B service providers make business-to-business transactions on the Internet easier. These e-businesses help other businesses improve policy and procedure, customer service and general operations.
• Brick-and-mortar companies that wish to add a Web presence must determine the level of cooperation and integration the two separate entities will share.
• A company that can offer its services online and offline can add value to the customer’s experience.
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TERMINOLOGY
1-ClickSM system
24-by-7
auction model
B2B exchange
B2C (business-to-consumer)
bartering
brick-and-mortar business
business to business (B2B)
business-to-business integrators (B2Bi)
click-and-mortar business
client/server application
comparison-pricing model
continuous-availability computing
database
demand collection system
dynamic-pricing model
e-books
e-business
ebXML
e-commerce
EAI (Enterprise Application Integration)
EDI (Electronic Data Interchange )
EFT (Electronic Funds Transfer)
fault-tolerant systems
high-availability computing
horizontal portal
industry to industry (ItoI)
intelligent agent
JIT (just-in-time) inventory management
lead time
merchant server
name-your-price model
procurement
redundancy
request for proposal (RFP)
reserve price
reverse-auction model
search engine
shopping bot
shopping cart
storefront model
supply-chain management
toolbook
value-added network
vertical portal
SELF-REVIEW EXERCISES
2.1
State whether the following are true or false. If the answer is false, explain why.
a) A shopping cart allows customers to continue to browse after selecting each item they
wish to purchase.
b) In a reverse auction, the seller sets a price and customers make individual bids to buy an
item.
c) A reserve price is the highest bid a customer is willing to make.
d) In the demand-sensitive-pricing model, the price decreases as more people buy.
e) The name-your-price model is an auction-based model.
2.2
Fill in the blanks in each of the following statements:
company.
a) A business with a presence off, but not on, the Web is described as a
b) The
model is designed to bring prices down by increasing the number of customers who buy a particular product at once.
c) Customers can shop for products and store them for later purchase using a
.
d) Reserve prices are set by a seller in an
.
e) The two types of portals are called
and
.
ANSWERS TO SELF-REVIEW EXERCISES
2.1
a) True. b) False. This statement expresses the concept of a true auction. c) False. A reserve
price is the lowest price a seller will accept in an auction. d) True. e) False. The name-your price model allows customers to get a lower price by clearing the price with a number of vendors. This model
does not involve an auction.
2.2
a) brick-and-mortar. b) demand-sensitive pricing model. c) shopping cart. d) auction. e) vertical, horizontal.
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EXERCISES
2.3
State whether the following are true or false. If the answer is false, explain why.
a) eBay began as using the storefront model, but eventually introduced the auction model.
b) Shopping bots are often used to scour data contained within a single database or across
the Web to find answers to specific questions.
c) A B2B exchange allows businesses to conduct transactions online despite having disparate information systems.
d) Businesses with both a physical and an online presence are referred to as brick-and-mortar businesses.
e) Just-in-time inventory management is used to authenticate the shipper and receiver of
products in a warehouse.
2.4
Fill in the blanks in each of the following statements:
a)
computing attempts to minimize downtime;
computing attempts to eliminate it completely.
b) A
is a formal statement of need that allows vendors to solicit their products
and services to the government.
c)
sites allows customers to search several Web sites to find a desired product
or service at the lowest price.
d) Integrating traditional EDI systems with the Web is often referred to as
.
e)
can be used to improve compatibility between disparate systems, creating
new market opportunities.
2.5
Categorize each of the following items as it best relates to the storefront model, the auction
model or dynamic-pricing models:
a) reserve price
b) liquid price
c) shopping cart
d) catalog
e) Mercata
f) BottomDollar.com
2.6
Define each of the following terms:
a) Web-based training
b) name-your-price model
c) shopping cart
d) reverse auction
e) redundancy
f) high-availability computing
g) merchant server
2.7
(Class Discussion) Visit Amazon.com, eBay, Yahoo! and Priceline.com. How do
each of these companies generate a majority of their revenues? Visit each site and comment on the
sites navigability. Which model would you be most likely to use when making a purchase? Why?
2.8
Visit Bottomdollar.com, Pricewatch.com and Deja.com each of these sites offers a comparison-pricing service. At each site, search for a digital camera, a photo scanner and a
printer. Find the lowest price on each of these products at each site. Try to use the same brand and
model in each case. Make a chart with five columns and place the names of each product type vertically in the first column. In the header row, list the name of each site. Under each company write
the appropriate product name and price for each specific product type. Add up your total for each
site. Now visit a traditional retailer such as circuitcity.com or compusa.com, find the same
products on one of these sites and list them in the fifth column. Find a total cost of the products on
52
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Chapter 2
from the retailers Web site. Which of the sites was able to provide the lowest price on these products? Which site was able to offer price quotes from the largest number of sources?
2.9
Enrononline.com is a B2B exchange for the energy industry. Take the free tour available on the sites home page. How many energy products does enrononline.com offer? According to the tour, how does a person initiate a bid on an energy commodity? What is the “All or Nothing”
option as described in the tour? Enron offers an alternative to the B2B exchange at the end of the tour,
what is this alternative buying method?
2.10 Spend one hour searching the Web for free products and services. List as many free resources
as possible. Estimate the value of each free item you find. Determine the total value of all of the free
resources you discovered. Write a short essay summarizing your search efforts and discussing your
findings. If you are working with a group, compare your findings with those of others.
2.11 Make a spreadsheet containing a column for each of the following business models: storefront model, auction model, name-your-price-model and B2B exchange model. In each column, list
three e-businesses that operate in the corresponding model. Visit the Web site of each of the companies you have selected. Answer the following questions:
a) Do the companies operate with more than one of the defined business models (e.g., storefront and auction)? If, so which models do they implement?
b) Are the companies Internet-only companies, or brick-and-mortar businesses?
c) How do the companies generate revenue?
WORKS CITED
The notation <www.domain-name.com> indicates that the citation is for information
found on that Web site.
1.
J. Dodd, "Avoid the Hustle," PC Novice 11 May 2000: 4.
2.
F. Hayes, "Amazoned," Computer World 17 May 1999: 116.
3.
L. Himelstein and R. Hof, "eBay vs. Amazon.com," Business Week May 1999: 128.
4.
D.K. Berman, H. Green, "Cliff-Hanger Christmas,"Business Week e.biz, 23 October 2000: 33.
5. "When the Auction Is -- The B2B market hits $52 billion in 2002," <www.iconocast.com> 23 March 2000.
6.
F. Hayes, 116.
7.
L. Himelstein and R. Hof, 128.
8.
L. Himelstein and R. Hof, 128.
9.
M. Nelson "Portals to the Products You Need." PC Novice, 11 May 2000: 24.
10. M. Nelson, 24.
11. T. Foremski, "Google Spins Web of Success," Financial Times 6 July 2000: 12.
12. S. Burke, "AOL Time Warner Merger: A New Model For Partnerships," Computer Reseller
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13. <www.bottomdollar.com>.
14. "E-Business Technology Forecast," PriceWaterhouseCoopers 1999:120.
15. "E-Business Technology Forecast," 45.
16. “Business-to-Business Integration for the New Network Economy,” Active Software,
<www.activesoftware.com> 2000:6.
Chapter 2
e-Business Models
53
17. R. Drummond, "Are Portals Just Another Integration Problem?," e-Business Advisor July 2000:
48-49.
18. R. F. Bruner et al., The Portable MBA (New York: John Wiley & Sons, Inc. 1998) 146-147
19. C.W. Lamb, J.F. Hair, C. McDaniel, Marketing (Cincinnati: South-Western College Publishing,
1998) 400-401.
20. "Where the Money Is: B2B—Money is in the profiling B2B buyers," 6 January 2000
<www.iconocast.com/issue/2000010603.html>.
21. M. Duvall, "Integrators Make B2B Exchanges Easier," Inter@ctive Week 27 March 2000: 30.
22. D.K. Berman, H. Green, 36.
23. T. Perkins, "The Red Eye: The Year of Clicks and Mortar," Red Herring 23 October 2000.
RECOMMENDED READINGS
Batcheldor, B. “Auction Site Offers New Consumer Electronics.” InformationWeek 31 January 2000:
82.
Dragan, R. “Microsoft Site Server 3.0 Commerce Edition.” PC Magazine 14 December 1998:
<www.zdnet.com/filters/printerfriendly/0,6061,3747133,00.html>.
Copage, E. "Web Sites Clamor for Teens Attention." The New York Times 13 April 2000: E10.
Fletcher, J. "The Great E-Mortgage Bake-Off." The Wall Street Journal 2 June 2000: 12.
Goncalves, M. “Consortium Aims for Standards for E-Business.” Mass High Tech 28 August 1999:
17.
Goodison, D. "Kozmo.com Wraps up Food deal, and Faces Redlining Rap." Boston Business Journal 28 April 2000: 27.
Guglielmo, C. "Don’t Write Off Barnes & Noble." Upside: 132-137.
Guthrie, B. "When Trouble Strikes." PC Novice 11 May 2000: 17.
King, J. "How to B2B." ComputerWorld 28 February 2000.
Kosiur, D. Understanding Electronic Commerce. Redmond, WA: Microsoft Press, 1997.
Kwon, R. "Delivering Medical Records, Securely." Internet World 10 August 1998: 23.
McNamara, P. “Emerging Electronic Commerce Standard Passes First Big Test.” Network World 6
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Methvin, D. W. “How to Succeed in E-Business.” Windows Magazine August 1999: 98–108.
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Price, D.L. Online Auctions at eBay: Bid with Confidence, Sell with Success. Rocklin, CA: PRIMA
TECH a Division of PRIMA Publishing, 1999.
Ranjay G. and Garino J. "Bricks to Clicks." Siliconindia June 2000: 75-78.
Symoens, J. “Site Server is a Fine Set of Tools for Web Site Building.” InfoWorld 26 January 1998:
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Wagner, M. "Google Bets Farm on Linux." InternetWeek 5 June 2000: 1, 84.
Walker, R. "Get Big Fast." PC Novice 11 May: 210-212.
Weber, J. “Clicks and Mortar.” The Industry Standard 2 August 1999: 5.
Wilson, T. “Up Next: An Exchange Of Exchanges.” Internet Week 10 April 2000: 25.